i hope more off the grid style and people can mingle and interact and remove all our differences and work on our similarities. this creates opportunity. >> the time has come and i am very hungry. what have you got? >> i got this from on the go, a sandwich, and a caramel cupcake. i went with home cooking. what de think? >> i will have another bite. >> sounds good. >> that was fantastic.

let's start with you. >> i had the fried mac and cheese, and twinkies. i wanted to get something kind of classic with a twist on it. >> it was crispy. >> i will admit. >> want to try fieried mac and cheese? >> was that the best twinkie? >> would you say you had the winning male? >> definitely. >> no. >> you are the "chompion." clair has won. you are the first "chompion."

>> they know it iwas me because i got a free meal. and check a map on -- check them out on facebook. take a peek at the stuff we have cut. to get our -- check out our blog. i will have

we need documents to be included for the clerk. items today will appear on the october 16th, 2012 board of supervisors agenda unless otherwise stated >> thank you, colleagues. we will call six out of order first. six, we have the director

who will be leaving so he wanted to be here. >>the clerk: resolution authorizing lease of 255,420 rentable square feet at bayshore boulevard, daly city, california from prolog *f sl.p. for a 20-year term plus two five-year extensions at rent of $2,449,642 with annual increases for san francisco municipal transportation agency's towed car operations and other services. >> for this we have ed with the mta and sinaly. >> good afternoon, ed riskos, transportation director. i want to thank you for shuffling the agenda to accommodate this item, which is of great importance to the agency,

which is why i wanted to be here so you could hear from my firsthand about it. what is before you is a resolution that would approve a leaswe have been seeing quite sometime that would solve a number of challenges we are currently facing. therefore it is very important to the agency. we have a wide array of assets in the mta across the city that we use to operator all the modes of transit that we operator, or transportation that we're responsible for, the lion's share which of course is muni. because of the diversity and age and condition of the assets, the real estate assets we have, about a year ago, at the direction of our board, we initiated real estate master planning study, which is coming close to completion.

one of the main impetuses is not just the deteriorating state of many of the assets we work in, some of which we own and some of which we lease, but also as we look to the growth of transit in the city, both from specific projects such as the brt projects, but also the general growth of transit ridership that we anticipate and growth of the city that we will need to accommodate, our fleet plan calls for 20% increase in number of vehicles we operator, from about 1,000 to about 1,200. as we were looking at how we would accommodate another 200 transit vehicles we did some kind of rough calculations and identified a need for 31 additional achers of real estate in order to support our transit and other operations. so overlaying that with the poor state of repair of the

facilities that we currently have, we thought it would be a good time to step back and take a more comprehensive evaluation of our facilities and of our options for meeting future demand. so that vision plan -- we are calling it vision plan. it is something that we will be briefing you on soon and coming to the board with, to our board, to your board and the public with. that plan at this point while we are just about done, we have a final draft report, there's still some final work to be done, that assumes the execution of this lease. it assumes the availability of this space. the letter i sent you and i think the good report from the budget analyst references possible uses for that space. one was the enforcement division. one of them is the video shop, which is currently in temporary facilities also on lease space. the third is the training

division, which is perhaps the best candidate for that space. the move of which is required to make the rest of the vision plan fall in place. the good news, although the plan isn't complete yet, i will share with you that assuming the inclusion of this lease in our portfolio, the processes identify the need for zero new additional space otherwise. so we went in thinking we would need 31 additional acres. looks like the conclusion of this plan will be no additional space. again, assuming this -- we are able to execute this lease. but that assumes that we're doing a lot of shuffling things around. we're moving functions out of one facility so that we can rehab and do joint development, so it is kind of an intricate puzzle piece of which this lease is at the front end of making the space to make the rest of that vision

implementable. we currently -- the lease initially would house the towed vehicle facility that's currently run by our contractor auto return out of pier 70. pier 70 is a pretty old, dilapidated facility. it was not obviously built for this function. the port of san francisco has notified us two years ago that they are pursuing development on that facility. at some point we would need to vacate the facility. while, you know, as of today that's not imminent, because of the time it takes for us to transition a big operation like this, we need to plan. we can't wait until the development is imminent and then kind of scramble to take our way out of the due diligence we have to do to either purchase or lease space and the city processes we have to go

through and all the steps. it takes time. so once we were informed by the port of this need to move, we started the process of evaluating alternative sites. that both i think are reports and subsequent info but the budget analyst's report speaks a little of that process. some of the sites and challenges in finding space this big in san francisco that was available and suitable and reasonably priced. and really what we found is there are very few, if any options out there that can serve the purpose of this function in our dense city. so that got us to the bayshore property that's the subject of this proposed lease that's before you for consideration. so what this property brings is it meets our -- what we see as an immediate need to get the auto return function out of pier 70.

but importantly, as i mentioned in the beginning, it will help us meet future needs as the need to move training division out of the presidio yard up on geary and masonic, which it currently resides. again, that needs to happen in order for us to redevelop that facility and modernize it. it is ready now. or just about. it is close to ready now. we really have kind of a narrow window of opportunity here to capture a site that otherwise -- you know, that we don't really see available alternatives to. while i will speak to some of what the budget analysts raise, the fact is that this is a fair market value lease, we had an independent appraisal done. we do think it is a reasonable value. the fact is that as you all

know, and i was at the forecast san francisco event this morning where some economists confirmed this, real estate costs in this city are rising very, very fast. we are off the charts for the rest of the country. so the idea that delay might get us a better deal, i think we'd have to think about that in terms of reality of today's real estate market. so in terms of the budget analyst report, i want to thank them, first of all, for working so closely with our staff and developing what i thought was a very thorough and comprehensive report and raising a lot of good issues that i think are worthy of discussion. the first concern that the budget analyst report raised is that this lease, because it is more expensive than what we are currently paying the port at pier 70 will increase the haul long-term operation. that is a factual statement, is it true.

there is perhaps a bit of an issue of you get what you pay for. if you look at the conditions at pier 70. not just the basic layout and its less than ideal structure for supporting this operation, but if you look at some of the actual physical conditions, there's significant flooding where san franciscans are having to wade through to get their vehicles. the facilities for the employees are not ones we would generally accept for our own employees. these are good union jobs and people working in conditions that i think any of you would find are inadequate. so while we are paying less at pier 70 than we would be paying at bayshore, again, this is fair market value by independent appraisal and future uses we bring in will help amortize some of

that cost. the next point the budget analyst raised is -- this lease is more expensive than purchasing. again, that is absolutely correct. it is absolutely correct. however, we don't have a purchase option. we did -- we were interested in purchasing this space because we can't move that fast in government to do large real estate transactions. we are unable to do it to acquire it while it was on the market. while we agree that purchasing would be preferable generally to leasing, and we have been moving out of lease space over the years. i think we have provided information to your offices to that effect, we don't see a viable purchase option out there. as the budget analyst report said, this appears to be the best option. i think that was on the -- in the summary of the budget analyst report. at least the best option

for lease space. there was concern raised by the budget analyst i think appropriately if we were to execute the option to enable the landlord to undertake improvements for us in the second phase, the first phase they cover at their cost but the second as an option where we could have them do it and finance it for us. that the interest cost was too high and probably not in the best interest of the agency, we agree with that. and finally a recommendation or concern raised that this causes a six-month overlap where we will be paying rent in two places. i guess what i would say to that is first of all we budgeted for a six-month overlap. looks like at this point that we could probably get that overlap down to three months. gone, when you consider the time lines involved with

moving this kind of operation, the due diligence we have to do, decisions we make in terms of setting up work orders with other agencies such as the port in this case and executing a lease, getting this done with only three months of overlap i think would be a tremendous achievement. so it is absolutely true that we have budgeted for six months and there will certainly be overlap. it would be impossible to do this i think without any such overlap. so i think every point raised by the budget analyst report was entirely accurate. i think there is still a good basis for supporting -- for us as a very important part of making our future real estate vision work. we accept the two recommendations the budget analyst made in the report. i think they were both good recommendations, one being i come back and report to you on that vision plan formally and publicly, which i'm more than happy to do. the second is that we decline to exercise that

option for having the landlord finance any phase two improvements. those are both recommendations we would accept. in close i guess i would say that i've been before you, i've been before my board and the public talking about my concerns about the operating budget of the agency and its inadequacy to deliver the level of service we want to provide and san franciscans expect us to provide. so in that context i want to assure you that very lightly i trade on decisions in terms of expending operating money that otherwise could be delivering front line service. i have worked to be very frugal in developing our budget and management costs in overtime. soon we will be before you with a third-party contract for workers' comp so we can get a handle on our workers' comp costs. so i want to assure you

that i would never want to ask you to authorize expenditures that i didn't think were essential for the agency. so with that i do have our cfo, our real estate manager representatives from the lease partner and our contractor all here to answer any questions that you might have. >> okay. thank you. if there are no questions from the committee at this time i would like to go to the budget analyst report. one second. supervisor campos? why don't we go to the budget analyst report. >> madam chair, members of the committee, supervisor campos. under this proposed new 20-year lease at 2650 bayshore boulevard in daly city -- this lease has two five-year options for the city's vehicle towing and storage operations. if the sfmta requests additional lease

improvements, the sfmta would pay the landlord prologis high interest rates, nine to ten percent. he is considering our recommendation. the related costs to be paid by the sfmta could increase by over 39%, or 690,070 in first year from 1.8 million dollars at pier 70 to 2.5 million daly city. presently under sfmta's lease at pier 70 the rental cost for towing and storage operations are fully reimbursed from the license fee charged to auto return. that fee is not anticipated to be increased, sfmta tells us, therefore the increased rental expense is to be borne by the sfmta;

in other words, a new expense. according to sfmta prologis moved faster than sfmta to purchase the proposed bayshore site. the sfmta decided to lease with total renter of 70.2 million over the first 20 years. that does not include the two five-year options. such rental costs of 70.2 million exceed the purchase price of 2650 bayshore boulevard, or the price including interest to purchase other comparable properties. they told us they looked at other comparable property. that price exceeds by 34.1 million. so we are talking -- we are looking at a 94.5% more to rent this property than to acquire it. we understand the statement

by mr. risken that they were not able to move fast enough. the proposed rent requires 3% annual increases which, to me, is reasonable. there is an additional 4% increase in addition to the 3% every year. over 30-year term including the five-year term they would pay the 4% extra every five years. regarding additional 4% increase when we asked her about it she stated sfmta had limited leverage because of theser competing tenants and therefore had to accept the additional 4%. however we asked ms. bose to provide the names of the competing tenants, she did not do so. the proposed lease results

in a three-month overlap, as mr. risken indicated, whereas sfmta must pay the rent at pier 70 as well as the proposed daly city site. the city can't terminate the lease that. soot thing ms. boes told us they wanted to do, wanted to have the flexibility in case they did acquire some other alternative site. the city can't terminate the lease until year 2010 yet prologis still receives this 4% increase. interingly they had an appraisal of this property. the appraiser they hired stated it was fair market rental. what he didn't state is it did not included a decisional 4% every five years so this is not fair market rental, just based on what the appraiser

reported. the lease does not expire until july 31st of 2015. i understand the logistics but it is a matter of fact the port lease does not, pyre until july 2013. regarding mr. risken's statement about relocations and ms. boes also mentioned other potential lease terminations, there's no guarantees whatsoever, if you approve this item, that such lease terminations or relocations will take place. the purpose of that would be to save money. that is good but there's no guarantees that's going to happen. the sfmta initially intended to purchase rather than lease the property. again, because of the prologis was able to do that in a swifter manner.

so consequently prologis purchased this property, supervisors, at $21 million. that purchase price for $21 million is over $49 million less than the rent of $70.2 million that the sfmta is required to pay. that is just for the first 20 years. so prologis is going to make a lot of money on this deal. at $70 million their guaranteed rent, plus additional two five years, which we did not put in our calculation, compared to the purchase price of $21 million. let me clarify something. mr. risken said the budget analyst concluded this was the only alternative site. that statement in our report came from the sfmta, not from the budget analyst. it was their statement, which we objectively

reported back to the supervisors that they stated that this was the only -- the best alternative -- the best site available. but it was not the budget analyst statement. that is why i did say in the recommendation that it is a policy matter. i relied on their statement, but we made no verification of that whatsoever. finally our recommendations on page 13 of our report, as mr. risken has indicated and he stated and concurs with recommendations is they report back to the board on this report that they are doing for the real estate and tax facilities vision for the 21st century report. and also that the sfmta, if they decided they need improvements, which probably they will, as we understand it, that they would pay for that up front. of course that will be

another budget expense rather than paying exorbitant interest rates of 9% to 10%. so overall we consider approval of the proposed resolution as recommended by the two recommendations to be a policy matter by the board of supervisors. we would be happy to respond to any questions. >> thank you, mr. rose. supervisor campos. >> thank you very much, madam chair. i want to thank the transportation director for the city for his presentation, as well as his staff for the work on this item and our budget and legislative analyst and his staff. i have a great deal of respect for mr. risken and ms. bows. i appreciate a lot of the work they are trying to do to address some of the issues that have been raised over the years about the mta. so the questions i have are not about them but specifically about the specifics of this lease. so if i may, through the chair, if i can ask -- i don't know if it is mr.

risken or ms. boes to come up. before i go into some of the questions about the lease -- let me say a couple points: one, i don't question the need to move out of this site. that it is inadequate, there are many challenges that are presented to people who work there. i think that goes without question. clearly, we need to move. i don't believe we should move and move into something that is essentially a bad deal. i don't think that moving for the sake of moving justifies entering into a deal that is not good for the city. so the question is, is this a good deal for the city. the first question that comes up, to be honest, goes to the last point -- last couple of points that

mr. rose made. this company bought this for $21 million. over the course of a 20-year lease we will pay about $70 million in rent. even if we hadn't just spnt the $21 million, if we had financed that purchase, you are talking about paying $34 million to actually own the property and have that asset. instead, we are talking about spending $70 million in rent. after 20 years we're not going to own that property. so what happened here in terms of, you know, managing the writer's money. you and i have had the conversation, the challenges the mta has had to en counter the last few years. the county transportation gave the mta * $7 million because there was a shortfall in the budget so that, you know, we could lessen the impact of the

service cuts that had to be made by the mta. and yet we have a situation that we could have bought this property for $21 million. maybe as high as $34. why didn't that happen? >> okay. thank you, supervisor campos, through the chair. i will let the folks involved in the actually transaction speak directly to your question. i do want to apologize for the budget analyst for putting or words in his mouth. his report states clearly according to the sfmta the best existing option is this lease. so sorry. my bad on that one. in terms of how this deal emerged, whether we had an opportunity at $21 million, i'm going to ask either ms. boes or ms. mcgeary to speak to. i will say, you know, it's not 21 to